The price ratio of stocks CPT (Camden Property Trust) and ESS (Essex Property Trust Inc.) is currently at the local extremes below its average. The correlation of these two stocks is very high (long term yearly correlation 72.49%, short term monthly correlation 78.5%) and thus we might assume that the price ratio of both stocks might return to its average. To prosper from this potential setup, we will track the trade of long CPT from its price 65.75 and short ESS from its price 160.95. Overall historical analysis speaks in favor for the mean reversion of this pair.

Like the other REITs, Camden has been hurt by the recent housing bust. But, theuir long-term prospects are good, particularly in the populated areas they serve. They have dumped their junk and focused in areas with good margins.

Camden Property Trust (CPT) is a real estate investment trust (REIT) and provides expertise in ownership, development and management of multifamily apartment communities. The company’s portfolio comprises of 186 properties containing 63,843 apartment homes geographically dispersed across the United States from Washington DC to Southern California.

The United States most populous state, California has witnessed doubling of housing prices in the past few years. The potential homebuyers find renting home as more lucrative than owning. Moreover, decline in production level would further worsen the worries for first time homebuyers. This bodes well with CPT, as South California is one of its largest markets.

The demand for well-located apartments has risen, as the children of the Baby Boomers are starting families and prefer living in downtown areas near their jobs. Moreover, factors like improved job opportunities should push the demand for housing market. This has pushed demand for rental house, which is reflected in the form of increase in rental by 4.0% to 4.4% across the state. The company through its geographic presence should be able to take advantage of this growth. In a strategy to concentrate on high-growth market the company has exited from its non-core Tucson and Midwest market.

Camden’s same-property revenues have increased 6.3% for the last quarter. The company has a strong development pipeline with eight wholly-owned communities and expansion of an existing property, which should ensure enhanced top-line growth. Factors like supply-constrained market, increase in job growth rate and company’s focus on high profile market fuels the prospects for Camden.

Recent condo conversions have left a shortage of higher end apartment homes. With interest rates rising fewer people will be buying. Enter CPT, poised to cash in on an increased demand for rentals. Add that to their track record and I think we have a winner. ... I hope i don't have to change my mind after the investors meeting tonight!